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London market hits meltdown within hours of Budget

Monday 26th March 2012
Written by Rosalind Renshaw

The London property market plunged into meltdown yesterday.

The effects were seen in the rapid wake of the Chancellor’s bombshell announcement that purchasers  using companies as the buying vehicles of £2m-plus properties would be stung by 15% Stamp Duty as from midnight. In London, buying via company vehicles is extremely common.

Within hours, London agents were reporting chaos, as deal after deal fell through. Staff at some upmarket agents, including Savills - which last week revealed it has 50 properties on its books at £15m or more -  were working until midnight trying to get deals through before the deadline.

First to warn was Ben Everest, partner at LDG in the West End.

He said that there had been a ‘dramatic’ effect, with deals in the region of £2m-£2.5m being urgently re-negotiated downwards.

By 6pm, Ed Mead, director of Douglas & Gordon, said there had been fall-throughs across London.

He said: “It has been less than seven hours since the Chancellor delivered the Budget and the prime central London property market has gone into meltdown.

“I don’t think anyone has quite clicked that many of the properties at this price level are bought by a company through personal choice rather than a way to avoid Stamp Duty taxation.

“Most property companies buy for development through companies and they’re pulling out too.
 
“There have been fall-throughs seen across London by several estate agents, with company buyers unwilling to pay this absurd 15% tax. 

“A few buyers have tried to off-set this additional cost by decreasing their offers by as much as 10%, which has caused vendors to pull out.

“The repercussions of these fall-throughs has caused widespread chaos, with property chains being broken and deals that have only a few days to complete falling through.”

He went on: “Why are we slamming doors in the faces of international buyers who have built London into what it is, and who have been spending billions whilst here?”

He said: “A sledgehammer has been used to crack a nut, but at what cost?”
 
Mead warned that if deals continued being hit “in a very important market that uniquely is driven from the top down”, the effects could be catastrophic.

(52) Comments

Added by george on 2012-03-24 11:20:22

'market driven from the top down?! don't make me laugh

the property market london or otherwise is driven from the bottom....that's why it's a ladder! and the reason why it is stagnating is due to overvaluation and the rise of BTL investors competing head to head with first time buyers for the same properties

all agents know this but a sale is a sale
Added by hotairmail on 2012-03-23 08:41:26

Excellent news.

Savills and Knight Frank etc. remind me of the title of a Genesis album of my youth..."Selling England by the Pound".
Added by Brit1234 on 2012-03-22 22:38:15

Great news. :)

The huge amount of property ramping by Savils and Knight Frank has been sickening. Out of all the estate agents in the country these guys deserve to get burnt. Where other estate agents have cut back economised/streamlined these two have been laughing at everyone else on the London bubble. Time for them to earn a living and stop living off mass money laundering.

Tick, tick, tick pop, here comes the crash. :)
Added by Bob on 2012-03-22 21:46:04

If you are an EA and you cannot see how this will affect the housing market throughout the whole of the UK then frankly, IMPO, you should find another line of work more suited to your abilities.

For a decade or more our profession has used London as the reason to justify higher and higher asking prices in the regions. You can't suddenly turn around and say that what happens in London will no affect the rest of the UK.

Personally, I think these new 7% and 15% taxes are only the supporting act - banks are raising interest rates. It might take 2 years but I think we will be back to 85 mortgage rates or higher by then. That will crash the market across the UK.
Added by Honest john on 2012-03-22 21:09:33

this is going to make the land registrys MOM may 2012 figures go into reverse ! LOL
Added by Jonnie on 2012-03-22 20:31:15

Rant,

Careful mate, it feels like you are close to doing that thing where HPC'ers change their tune to suit - you have been quite explicit on EAT in the past about your views of how the London market (when you felt is was going well) has no connection with the rest of the market, you can't link them up now it might suit you chap, bad form and all that

Jonnie
Added by rantnrave on 2012-03-22 19:22:44

If prices in London start falling, the Halifax, Nationwide and Land Registry sold price indices could start running at an annual rate of -5% or more before the end of 2012 (it's already lower than that in some of the regions).

Had every one who bought a property over the last decade done so purely as a home, then this wouldn't be so significant. The property investment market however is highly sensitive to sentiment and negative numbers are not what 'savvy BTL investors' are looking for... So far, foreign investors in Prime Central London have prevented those headlines. That may be about to change.

Splashed over the front pages and on the evening news, what impact would such a figure have on those who have invested in property in recent years, looking to boost their pension for example? Will they stick it out, or look for the exit door in large numbers, starting a snowball effect?

Throw in the recent SVR hikes and the imminent end to the temporary boost in FTB activity, and the UK housing market could be heading for a perfect storm.
Added by WHAT? on 2012-03-22 17:51:45

@ Savills Are Liars on 2012-03-22 16:50:5

i don't understand your point!
Added by AceofSpades on 2012-03-22 17:21:13

POTW - Spot on.

Buyers in our area of the SE don't make comparisons to the National Average. It's an old stat that any person with an ounce of sense knows is irrelevant to your search.

Focus on YOUR area that you wish to buy, even the average price on a street can be drastically out of sync.
Added by Savills Are Liars on 2012-03-22 16:50:53

This story is so far fetched its untrue. Go to rightmove do a last 24 hour search on london and a 10 mile radius for properties over £3m and you will see only 3 properties over £5m have been uploaded to Rightmove in the past 24 hours, I reckon at least one of these is genuinely new to the market so maybe and it is only a maybe, a maximum of 2 properties across a large swathe of the south east fell out of bed, which is probably a typical day!!
Added by Sibley's B'stard Child on 2012-03-22 16:22:06

PoTW,

You're right, this market (of only circa 75k properties nationwide) is largely removed from the rest of the resi market.

However, as yesterday's EA shroud-waving piece in the Indy pointed-out, since London is the only thing preventing the major HPI indices from showing greater falls this downward pressure (if it at all materialises) will affect the averages accordingly.

Interesting times ahead. Perhaps.
Added by rantnrave on 2012-03-22 15:39:44

There's quite a few more details here, buried in the budget's small print:

'In addition, the Government will consult on the introduction of an annual charge on residential properties valued at over £2 million owned by these persons with the intention of legislating in Finance Bill 2013 for commencement in April 2013'

Also, a measure to:
extend the capital gains tax regime to gains on the disposal of UK residential property by non-resident, non-natural persons, such as companies, to support these
changes. This will commence from April 2013, following consultation on the details of the measure.
Added by Puzzled of Tunbridge Wells on 2012-03-22 15:21:08

So, the top end will come down a bit, for a while.

How will a 2.2 million house ending selling for £1.99 million have any affect on a 3 bed semi in the suburbs selling for an unbelievable £400k?

Surely the markets are largely separate? How many property chains do you get which start at a 200k flat and work up to a £2 million house?
Added by Johnny big gaf on 2012-03-22 15:07:57

All the information you need to find out what is going on is freely available on the net.

Certain people are currently running for the hills like rats leaving a sinking ship.

Its real.

It IS going to happen.

The powers that be are ready for it, they have already planned for it.

You just cant see it even though its staring you right in the face.

Trust the voice in the back of your head, trust your instincts.

Good luck.
Added by mystic on 2012-03-22 14:59:38

perhaps mystic mike on the nfopp board might know whats going to happen

http://www.slideshare.net/PoppyD/mike-toogoods-presentation

Added by Johnny big gaf on 2012-03-22 14:46:18

Get ready for the biggest financial crash the world has ever seen.

House prices are the least of your worries.

Its RIGHT there but you just cant see it.

Good luck.
Added by rantnrave on 2012-03-22 13:47:14

Peter Bolton King interviews EAToday Founder Rosalind Renshow, 4th Jan 2012:

PBK: Looking forward, I am obviously asked what I think the market is going to do and what the outlook is for sales and lettings agents. What do you think the future holds for the industry?

RR: Everyone seems to be predicting more of the same – ie, low sales transactions but busy times on the lettings side. However, the market has a habit of having tricks up its sleeve, and I do wonder whether the London property bubble might implode, with some unexpected consequences.
Added by Ah-so on 2012-03-22 13:42:13

PeeBee -

Your analysis is not quite right. Yes, a lot of Japanese property in central Tokyo fell by 90%, but that was the frothiest bubble parts. More broadly, property prices are approximately lower today than they were in 1990. Prices have gone down and carried on going down, year in, year out.

Property fell sharply at first, but then carried on its decent. There was no U-shaped crash (down then up again). It just means that if you had bought Japanese property in 1995 you would have lost less than someone who bought in 1990.
Added by John, London on 2012-03-22 13:35:52

Best news in ages. Now the 'grass roots of world economic recovery' might persuade the world's financial elite to stick their speculative cash somewhere else and ordinary people might be able to own a house again rather than paying over 50pc of their income to vampireesque landlords.
Added by James on 2012-03-22 13:33:33

Working Nomad

Northern piggies have been squealing for four years now

Time to listen to the over-protected London piggies do the same - I bet LSL are pleased they paid £50,000,000 for M & P - good timing PR :-)

Added by Working Nomad on 2012-03-22 13:22:14

Squeal piggies, squeal!
Added by POP! on 2012-03-22 12:17:49

'Why are we slamming doors in the faces of international buyers who have built London into what it is?'

Er....you mean an overpriced, over-populated hell-hole with shocking infrastructure, whose only purpose is to whore itself to international spivs and criminals looking for somewhere to launder their cash?

Well, I can think of a few reasons we might want to slam the door on these people - not least of which is that it might finally pop the biggest property bubble in history and force a few estate agents to get productive jobs.....

Happy days!
Added by PeeBee on 2012-03-22 12:17:04

'dave'. Thought this just might bring you back out into the open.

"well after the tokyo crash in 1991 where some prices fell 99%...yes 99%
prices have never recovered"

"also explain how japan did 20 years of zero rates and QE and prices are still 40% lower than 1991"

OKAY - let's have a look at your theory a bit closer shall we?

Take a property at a million quid. It drops by 99%. It is now 'worth' tengrand - yes?

It then, over a period of time (20 years using your analogy - you've been banging on about this for about a year...), the property 'creeps' back up to 60% of its high - to £600k. Still yes?

AND THATS NOT A RECOVERY??

I bet the people who bought in 1991 in Japan are opening bottles of Saki in celebration - and the poor bu99ers who sold up have learned a lesson - "what goes down WILL go back up" - and crying into their sushi!

'dave' - stick to farming, matey boy. You have a cast-iron certainty - that cows udders that never go up...
Added by James Jeffries on 2012-03-22 12:14:18

POP!
Added by The Watcher on 2012-03-22 11:39:39

So at last the famous S.E bubble will pop. YAY. That means that it will drage the national average down just as it dragged it upwards.

AND SO IT BEGINS......

So let me see, the youth of today either spend all their money on paying towards retirees pensions or on a home for themselves... I am glad that I wont be relying on these up coming youngsters to fund my pension!

So let the games begin...
Added by Nah on 2012-03-22 11:30:45

anyone with mortgaged btl portfolio faces finacial ruin

All them repoed Londoners have got to live somewhere.

Come on George O, seal the deal and stick interest rates up to 6%
Added by bigG on 2012-03-22 11:22:58

''Within hours, London agents were reporting chaos, as deal after deal fell through. Staff at some upmarket agents, including Savills - which last week revealed it has 50 properties on its books at £15m or more - were working until midnight trying to get deals through before the deadline.''

Oh please....and I suppose ALL the solicitors stayed at their desks to ensure the chains/transactions went through...oh and what about exchange deposits? Did the banks decide to work late too? Bit of flag waving publicity and hot air.
Added by Sorry Rant on 2012-03-22 11:19:56

P-O-P!

This won't do anything for you or others on your situation, in fact the exodus from London could cause prices to adjust upwards.
Added by Chris Protopapas on 2012-03-22 11:19:21

I didn't know that buying a property in a company can avoid paying any stamp duty and it is not the case otherwise we would all be doing it.

I think the purpose of the 15% stamp duty on company purchases is to close a loophole or "stamp duty mitigation schemes" where a property exchanges on one company and then buys in another. Its a complicated process and fraught with dangers as HMRC can always challenge all cases and the buyer is left with costs and still having to pay full SDLT.

I think it is correct to close this loophole, that by the way is not restricted to foreign buyers; anyone can do it if they can access these schemes and if their solicitor is open to doing it.

The Chancellor seems to have have taken a sledge hammer to this matter that seems not to have been thought through at all. Half baked comes to mind. It will probably do untold damage to the London market and I do wonder why some commentators here are smiling at this prospect.
Added by dave on 2012-03-22 11:01:07

the headline figures will finally show what has been happening across the rest of the country

this will accelerate houseprice falls and finally expell the myth that prices are stable

anyone with mortgaged btl portfolio faces finacial ruin
Added by rantnrave on 2012-03-22 11:00:51

P-O-P!
Added by @Bob on 2012-03-22 10:59:38


"It will have a knock-on affect across the UK for house prices"

Don't be stupid mate, the escalating prices in london did not see a corresponding increase across the UK.

The wrist slashing falls in London will simply mean that the Private owners who have over mortgaged themselves on the back of advice from the likes of Henry Pryor are right up a very dry creek that stinks of dung.
The FD's of companies that are equally over stretched might also have a bit of explaining to do.
I am looking forward to all the "deposit paid" super car bargains that the car dealers will be hawking round by the end of the week.

This has been coming, ever since the election!
Added by SteveFromLeicester on 2012-03-22 10:49:45

Quote from Bob:

"I think a crash will now occur in London and it will cause a crash across the UK".

Sorry Bob, could you explain why it will cause a crash across the UK?

Granted I'm a Letting Agent not an Estate Agent so I'm speaking as an observer rather than an insider, but it seems to me that London has operated in a separate market (I'd go as far as to say its own little bubble) for some time and if London prices do crash they'll be doing nothing more than closing the gap on the rest of the UK where prices have been broadly falling for several years.

Have I missed something?
Added by PbroAgent on 2012-03-22 10:47:29

@Bob.

The fact London Prices have continued going up has had zero effect on prices in the rest of the country since the credit crunch. Equally, London going pop will also have no effect on the rest of the country away from the south east.

Sure it will effect the national average house price, but since when has that had a bearing on anything?
Added by Bob on 2012-03-22 10:35:42

@Anonymous Coward

An awful lot of people in London selling their VERY expensive properties are no doubt highly leveraged - we probably are within months of seeing many of them default on their loans.

Interest rates are rising and many have gambled on house prices constantly rising in London.

Look at RM at houses over 1 million for sale - you have your choice but we keeping being told that foreign investors and bankers are buying them up. I doubt there are enough foreigners wishing to come and buy in London.

The bankers I know sold up 1 or 2 years ago because they believe it is a bubble in London.

I think a crash will now occur in London and it will cause a crash across the UK. It will be good for our business - but try telling that to most EAs.
Added by Bob on 2012-03-22 10:31:09

What you are seeing in London is the final 'parabolic blow-off' - that is a financial term - for a market that goes crazy before crashing spectacularly.

The Olympics may drag this blow-off out over the Summer but once we get into the Autumn then the new property taxes combined with an economy heading back into recession will see London prices topple.

It will have a knock-on affect across the UK for house prices.
Added by Phew- Next door Neighbour! on 2012-03-22 10:03:17

Jon Hunt would have done well if he had exchanged on his place @ £300,000,000. So much for not selling at the bottom of the cycle hey Jon?
Added by Simon on 2012-03-22 09:57:16

7% stamp duty for the super wealthy shouldn't worry ordinary people ?
But wait ! What happens when house prices keep doubling ?
Some useful research is being applied to how to fund above inflation house prices in the future.
http://www.bankofengland.co.uk/publications/Documents/externalmpcpapers/extmpcpaper0035.pdf
Added by James on 2012-03-22 09:22:47

This will not affect the market outside of the South East and London

The people in the South are not selling in large numbers and coming North with their money

People with little or no money seem to be coming North!!!
Added by dave on 2012-03-22 09:22:26

anonymous coward

please explain what is good about high houseprices?

also explain how japan did 20 years of zero rates and QE and prices are still 40% lower than 1991

houseprice bubble in the US almost brought down the entire world financial system

I can easily see a central london property at 30 million falling to 3 million
Added by Anonymous Coward on 2012-03-22 09:17:28

I think this coupled with the end of the Olympics might dull the London property market shine.

But it will ripple out to affect the rest of the country.

In the North, prices will come down even more.

In the South, prices will start to come down.

I know that there are a whole load of HPCers that read EAT, but for all your bleating about it being a good thing, I would say we are now too far down the road to suddenly rip the plaster off (mixed metaphors - sorry).

If we had gone for immediate devaluation of property that would have been fine, but having struggled for 5 years using high inflation to devalue property, rather than real price falls, this could end up being disastrous.

Keep Calm & Carry On - I love that saying.
Added by SteveFromLeicester on 2012-03-22 09:12:41

QUOTE:

“I don’t think anyone has quite clicked that many of the properties at this price level are bought by a company through personal choice rather than a way to avoid Stamp Duty taxation".

Yeah right.
Added by dave on 2012-03-22 09:11:15

I'm an optimist

plunging houseprices are great for our future economy

the species known as youth

this is all great news
Added by Ray Evans on 2012-03-22 09:04:13

What a miserable lot most of you are this morning - especially our "Dave". Please move to Japan asap! ;>)
Added by The King IS in the Altogether! on 2012-03-22 08:43:01

Wealthy Buyers James?

I think that whole world just collapsed, there are lots of people who are "Enron" wealthy, but what you will see now is that the the greedy ones who hung on a few days too many will get hung out to, very publically, dry.

The next series of Escape to the Country may be delayed?

Added by dave on 2012-03-22 08:34:48

well after the tokyo crash in 1991 where some prices fell 99%...yes 99%

prices have never recovered
Added by Gordon Brown on 2012-03-22 08:28:57

"I don’t think anyone has quite clicked that many of the properties at this price level are bought by a company through personal choice rather than a way to avoid Stamp Duty taxation"
I think everyone knows that the "personal choice" being exercised is specifically "to avoid Stamp Duty taxation" by buying through a company.
Don't worry boys, the market wll recover, and quickly. The Stamp Duty loopholes were only a bonus. It's still the London property and location that these buyers want. They'll just have to get used to paying a higher overall cost for the privilege of enjoying a capital city that is where it is today through the wealth created by the under-remunerated, ordinary British working man over many centuries - or, more likely, the sellers will have to get used to annual increases in the value of their properties nearer to what the rest of us poor British taxpayers out in the sticks experience.
Welcome to a slight hint of the real world
Added by James on 2012-03-22 08:23:05

The London agents will have to work a little harder then in these austere times

Welcome to the world at large where deals are fragile and agents don't have a never ending supply of wealthy buyers

It has been a market all of it's own which has only benefited London folk, so please no more grumbling from London agents!!!!
Added by dave on 2012-03-22 07:47:44

central london seems like a money laundering operation by fraudsters abroad

anyone thinking this will continue must be mentally ill

central london prices are set to totally collapse when the fraudsters realise they have been mugs
Added by Good on 2012-03-22 07:36:18

I think they should pay 50%, especially on the properties over £5m, its only Arabs and Russians who buy those places anyway and they can afford it. I suppose we may see a fuel increase though hehe
Added by dave on 2012-03-22 07:26:39

important market

what a load of tosh....london prices are in a huge great bubble of epic proportions and like in japan prices could fall 90@ and still be expensive

I'm afraid london is about to get a rude awakening

the 'effects' are not catastrophic they are inevitable
Added by Now that's what I call a crash! on 2012-03-22 06:53:14

Come on Henry, get up. We are all looking forward to some expert advice.

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